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SEOUL - South Korea said Tuesday it will spend around five trillion won (3.78 billion dollars) to boost the slumping construction industry amid fears of a broader economic downturn.
The announcement comes two days after the government announced a 130-billion-dollar package to stabilise local financial markets.
The construction plan is the first of its kind since the East Asian financial crisis a decade ago, illustrating the depth of the downturn in the industry.
The government said it will set aside two trillion won to buy unsold apartments from builders and three trillion to buy land from them.
The measures also include providing liquidity for builders suffering from a credit shortage, an easing of some regulations on property speculation and possibly lower interest rates for certificates of deposit, a statement said.
Unsold apartments at end-July totalled 161,000, surpassing the 103,000 a decade ago, said the statement from the finance and land ministries and the regulatory Financial Services Commission.
"The downward pressure in housing prices will likely persist for some time given the unrest in financial markets and lower demand," it said.
Apart from protecting jobs, authorities want to prop up the construction sector to offset an expected fall in exports amid a likely worldwide economic slowdown.
Sunday's financial package has won support from the International Monetary Fund and ratings agencies.
Moody's Investors Service said the measures "will likely be helpful to address uncertainties in the international financial system, especially as they are experienced locally."
Fitch said it has affirmed Korea's sovereign rating, describing Sunday's package as "sufficiently focused and affordable."
A Cabinet meeting earlier Tuesday approved the financial package, which offers guarantees of up to 100 billion dollars on foreign-currency loans raised by domestic banks until June next year.
The central bank will also supply 30 billion dollars to banks and exporters in urgent need of the US currency.
President Lee Myung-Bak urged the banks themselves to share the pain and cut wages in return for the foreign debt guarantees.
"At a weekly Cabinet meeting, President Lee stressed voluntary and pain-sharing self-rescue efforts by local banks, which have thus far provided their executives and employees with generous pay cheques," said presidential spokesman Lee Dong-Kwan.
The government insists that South Korea's real economy and financial sector are sound, despite the global turmoil.
But it says it followed other countries in guaranteeing interbank loans to avoid disadvantaging Korean banks when they borrow overseas, and to ease fears in the financial market.
Despite foreign reserves of almost 240 billion dollars, South Korea was seen as vulnerable to the world financial turmoil because of a surge in short-term foreign borrowing by its banks over the past year as US interest rates fell.
The global credit crunch was complicating efforts to roll over those loans, causing a scramble for dollars and a plunge in the won's value.
Some 80 billion dollars in foreign currency borrowing by Korean banks is due to mature by next June.
- AFP/ir
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